RANJAN CONSTRUCTIONS Vs. CENTRAL BOARD OF DIRECT TAXES

JUDGEMENT

(1.) THE challenge in these writ applications revolves round the legality of Circular No. 737 (see [1996] 218 ITR (St.) 97), dated February 23, 1996, issued by the Central Board of Direct Taxes (in short "CBDT"), relating to admissibility of deduction on account of salary and interest to the partners of firms opting for estimation of income under Sections 44AD and 44AE of the Income-tax Act, 1961 (in short the "Act"). Same was issued on the ground that doubt has been raised relating to deduction as regards salary and interest to the partners of a firm while estimating income on the basis of the aforesaid two provisions. THE view impugned as expressed in the circular is at paragraph 4 thereof, and reads as follows (page 98) :

(2.) ACCORDING to learned counsel for the petitioners, the impugned view as expressed in paragraph 4 was at variance with clarifications already issued by the Central Board of Direct Taxes in its Circular No. 684 (see [1994] 208 ITR (St.) 8), dated June 10, 1994. It is their stand that the view expressed in Circular No. 684 (see [1994] 208 ITR (St.) 8), is in conformity with law and supersession thereof by the impugned circular is illegal. In OJC Nos.793, 2599, 2600, 1178 and 1179 of 1997 assessments have been completed basing on the impugned circular. In rest of the writ petitions notice issued for assessment/reassessment purportedly basing on the circular is under challenge.